Bank Customers Turn to Four-Year CDs for Best Return

It appears that consumers are responding to aggressive premiums offered on 48-month certificates of deposit at banks, according to data tracking firm Market Rates Insight.

Over the past 12 months, balances of four-year CDs have increased by $17 billion from $149 to $166 billion. During the same time period, balances of all other CDs declined from $264 billion to $225 billion. Credit union data was not tracked by MRI.

Premiums, the extra interest rate paid on top of the regular rates for the same CD, are the likely driver for growth, MRI found. Over the last 12 months, the premium offered on 48-month CDs increased from a low of 0.49% to a high of 1.04% this week, which was beyond the 0.59% national premium average on all deposit products.

"It appears that the four-year CD has the greatest national rate demand [and] elasticity under the current market condition" said Dan Geller, executive vice president at MRI in San Anselmo, Calif. "This is a validation of the golden rule of deposits-money gravitates toward the highest return."